Tuesday, March 28, 2017

Budgeting 101: How to Take Full Command of Your Finances

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Budgeting is at the core of financial stability and living a debt-free life. It does not matter if you are living paycheck to paycheck or making six figures per year without sound budgeting practices and a concrete plan of action, an individual or family cannot fully leverage their income to better their lifestyle and achieve their goals. Fortunately enough, budgeting isn't rocket science. You also don't need to be an accountant or financial analyst to cook up some financial models for effective budgeting. Given a short amount of time and patience, an effective budget can be adopted.


KISS is an acronym for Keep it Simple, Stupid. As the phrase implies, keep your budget plan, or at least your first one, clear and concise. You don't need to include any fancy terminologies you recently looked up on Google. Instead, come up with a simple list of monthly income and expenses. Your monthly expenses can encompass staples, such as groceries, utilities, transportation, and insurance. Income, on the other hand, will include your main source of paychecks coming in month to month, any dividends being paid to you from your investment portfolio, and part-time income you're receiving elsewhere.

2. Identify Net Income

Monthly net income is different from gross income, and a good budgeting plan must account for this critical difference. After taxes, how much are you left with to spend? This can be tricky to compute since not everyone is paid on a monthly basis. Some are paid per week, others bi-weekly. If you are paid per week, simply multiply by 52 and then divide by 12. For a bi- weekly income structure, simply multiply by 26 and then divide by 12. If you are getting paid thrice a week, multiply by 17.34 and then divide by 12.

3. Identify Expenses

There is no hard number for monthly expenses since you can't know for sure what you're going to spend your money on and how much the amount is. Categorize your expenses based on importance. Your monthly subscription to a fashion magazine isn't exactly as important as your monthly utility bills. Don't worry about coming up with the most accurate number. Try to get a feel of how wide a gap exists between your available income to spend and the expenses that consume it. If you arrive with a seemingly wide gap, then it's time to start pinpointing some unnecessary expenses and removing them from your list.

4. Track With Tech

Precise tracking tools are now available, most of which are free to download. Tracking your actual expenses incurred per month through manual tallying or journaling can be laborious and hard to maintain. A relatively easier solution would be to automate the tracking process by signing up with a budgeting application that monitors your spending habits and records your purchases month after month. It will be easier to keep track of every bottle of water or soda you buy at a gas station or every ticket you buy from a movie theater. Of course, be wary of tools that claim they are completely safe and free, but are actually malware. Make sure your chosen budgeting application already has a large user base and good user reviews before you join in and enter personal information.

5. Don't Accrue Debt

Budgeting is as much about saving money as it is about avoiding debt. Having multiple credit cards and mortgages at the same time can be financially crippling. The interest paid, usually on a monthly schedule, will restrict your spending and disable any opportunity of saving up cash. Only take on debt if you can pay for the principal amount plus interest fees in a timely manner. Do calculations in advance before you approach a bank or private lender. If what you are financing is not immediately needed, such as a second car or a 60-inch flat screen, then consider postponing it until you've saved enough money to pay cash in full.

6. Update Your Budget Plan

An effective budget plan must be updated to stay relevant with your current and future expenses, income sources, and goals. Remember, your initial budget plan was built to improve your finances and work towards increasing the gap between monthly income and expenses, with the latter being significantly lower than the former. Failure to update it at least once per quarter of the year will prevent you from seeing what you are doing right and what you should be correcting.

7. Stay Positive and Motivated

Your mindset will play a vital role in your ability to create and execute a budget effectively. Without a positive attitude, you are likely to revert back into your old spending habits and destroy any progress you've worked so hard to achieve. Staying motivated ensures you follow through with your budget plan by minimizing the impact of cutting costs and saving money. People will have different motivators, and thus your goal should be to identify what drives you. Is it a night out with friends after achieving your first financial milestone? Perhaps buying an addition to your wine or card collection to commemorate the day you wiped your credit slate clean? Irrespective of what it is that motivates you, make sure you find the time and the money to enjoy what you love in life.

8. Involve Everyone

These budgeting tips will be simpler to follow if you minimize temptations in the form of friends calling you on a Friday night to eat out at a fancy restaurant, or your relatives inviting you on a cruise ship for the weekend. While it's not necessarily a bad thing if you get such invitations, moderate these instances by involving everyone in your family and group of friends. Inform them of your plans to budget and be ready to say NO a lot more often. When your children, spouse, relatives, and friends are fully aware of your financial goals, they are more likely to respect your decisions and may even help you out by referring you to more cost-affordable service or product alternatives.

9. Invest Wisely

Investing is not for everyone, and should be done with the right set of criteria for picking assets. Do not confuse investing with speculation as the latter is riskier and is therefore bound to more potential losses in the future. Smart investing is a long-term pursuit for capital appreciation through low-risk, high-yield assets. Ideally, you'd want to pick stocks that have solid underlying companies behind them. A steady growth rate, good management, and dividend yield increase are all key parameters to look for when investing your hard-earned money. Budgeting will only get your finances so far. It is up to you and your investing practices to grow the funds further.

10. Seek Professional Consultation

It costs money to get advice from a financial adviser or accountant, yet the trade-off is invaluable knowledge and specific actionable steps for improving your budget and financial status. Even a one-time consultation can open your eyes to things you may have missed before and to new opportunities for saving and growing cash. The cost of financial consultation can range from $100 to as much as $300, depending on the service or the account being managed by the professional. Aside from a financial adviser, you can also seek professional advice from well- known books about budgeting and other financial topics, such as credit consolidation.

11. Keep Your Money Safe

Not only from your poor spending habits and lackluster discipline, but from malware and con artists that exist in this not-so- perfect world. Keep your cash safe by leaving behind money you don't need when going out with family or friends. In addition, refrain from using debit cards as they can easily be used by unauthorized people. Instead, go for credit cards that have more robust layers of security and insurance. When going to the grocery store or shopping mall, loose change and bills should be sorted and organized from your pockets, so they don’t fall off accidentally. Many people opt for paperless management of their bank accounts, which helps deter con artists from stealing data through physical mail.

12. Look For Cheaper Alternatives

You don't always have to leave behind expensive hobbies or cut off expensive items completely. There are ways in which you can enjoy the same experience but for much smaller costs. Instead of spending $400 on a futuristic-looking vacuum cleaner, purchase one that costs $160 but does the same thing. Brand names may indeed boast better quality in some cases, but most generic alternatives are designed and manufactured well enough to perform the tasks needed of them.

13. Consider Insurance

From property owner insurance to the warranty on your new laptop, some form of insurance can protect your investments for the long run. An insurance policy guarantees compensation in the event of damages that befall the product or property. Although not as vital as most of the budgeting tips aforementioned in this article, insurance can definitely help protect you during those rainy days when your car or work computer gets broken and needs immediate repairs or replacement. For instance, if you just bought an expensive laptop, a $200 warranty that covers the product for two years is a smart investment. After all, $200 is far cheaper than the amount you'll need to pay when the laptop needs repairs or parts replacement.

14. Evaluate Your Current Budgeting Plan

Part of what makes a good plan is continuous tweaking and improvement. A budgeting plan that does not adjust to changing conditions will fail to produce the desired results of smarter budget allocation and better savings accumulated over time. Make time to evaluate your budgeting plan and make revisions if necessary. Gather all financial statements you can from your bank's dedicated website. Download and open the PDF to see where most of your income went to, what new fixed and variable expenses have been added to your account, etc.

15. Keep Yourself Healthy

You're probably proud of yourself because of all the money you've saved working sixty hours per week or eating nothing but instant noodles and Chinese food. While these methods do save money, the damage to one's health cannot be ignored. If you don't take care of yourself, you'll end up paying more for medical services and prescription meds. Make healthier choices whenever possible. Allotting $25 per month for gym membership, for instance, is a small investment but can yield great health benefits. Buying and eating salmon once a week can cost you around $18 but the heart-friendly omega-3 oils and protein can make you physically and mentally stronger.

16. Use Coupons

Using coupon codes at the checkout counter will save you a measly $1 per trip, but over time can actually add up to a significant amount. You can also copy and paste coupon codes for purchases done online. This is an easy way to save anywhere between fifteen percent to forty percent on your purchases. It's a nifty tool not just for shopping but also for food deliveries from sites that aggregate menus and restaurants. You can get free deliveries or free sides or desserts with certain coupon codes that are totally free of charge. In addition, time your purchases during off-peak seasons, where there are tons of discount deals to capitalize on. For instance, buying winter apparel and gear during summertime might seem too early, but price tags on these items are actually lower than when Ber months start.


Although a noble thing to do, avoid trying to perform all sixteen of these budgeting tips in a short span of time, like in a week or month. It will take several months to a year to affect these changes to your current routine. Furthermore, note that not all of these tips will immediately result in more dollars saved month after month. Some tips will help develop good spending habits while others will pave new opportunities for savings growth. The main thing is to proactively follow your budgeting plan and be flexible when unforeseen variables emerge.

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